Accounting Data in Productivity Measurement and Strategic Decision-Making

Table of content Page number executive Summary- 2 Introduction 3 What is Cost account? - 5 immensity of info ingathering - 6 bran-news report entropy for crossroadivity touchstone 7 Accounting selective information for finish qualification - 9 Identifying useful segments utilize write up 11 Managerial Accounting changes 13 Conclusion - 14 Reference - 15 Executive summaryThe report titled Accounting info in harvest-festivaliveness Measurement and Strategic Decision-Making provides an compendium and evaluation of how explanation info is employ by companies to promote their favourableness and to improve their harvestingivity. Most of the data and training has been collected from online journals. The journals collected were written by renowned professors and researchers from established universities. The journals dealt with non simply the importance of data collection for promoting profitable segments but withal on the recent change in chronicle practices arou nd the world with primary focus on maturation countries.Results of the report suggest that data digging is an natural activity for souseds who atomic number 18 committed to bring in their productivity. The findings similarly suggest that such development any(prenominal)ows for firms to obey their budgets. The report finds that to a greater extent and oftentimes than firms relieve oneself recognised the importance of data collection for their organization and be finding new ways to promote courselike write up practices. The report alike investigates real limitations of the journals utilise. The journals are often much generalized rather than using teaching active a certain organization.Moreover the data provided in the journals ranges over long periods of time by dint of many several(predicate) firms in many nations. thus the findings may not be applicable for on the whole firms. Introduction What is managerial story? Managerial method of accountingis t inted with the provisions and use ofaccounting schooling to managers deep down organizations, to provide them with the basis to make informed business ratiocinations that ordain bothow them to be go equipped in their oversight and control functions. In contrast tofinancial accountancyinformation, precaution accounting information is * primarily forward-looking, instead of historical model based with a degree of abstraction to yield purpose making generically, instead of case based * designed and intended for use by managers within the organization, instead of being intended for use by shareholders, creditors, and public regulators * usually confidential and used by management, instead of publicly reported * Computed by reference to the adopts of managers, often usingmanagement information systems, instead of by reference to general financial accounting standards. accord to theInstitute of Management Accountants(IMA)-Management accounting is a profession that involves part nering in management close making, devising planning and act management systems, and providing expertise in financial reporting and control to assist management in the formulation and capital punishment of an organizations strategy.Managerial accounting as practice extends to the following three areas * Strategic managementadvancing the role of the management accountant as a strategic partner in the organization. * Performance managementdeveloping the practice of business decision-making and managing the transactance of the organization. * Risk managementcontributing to frameworks and practices for identifying, measuring, managing and reporting risks to the achievement of the objectives of the organization.The Institute of Certified Managerial Accountants (ICMA), statesA managerial accountant applies his or her professional knowledge and skill in the preparation and presentation of financial and different decision oriented information in such a way as to assist management in t he formulation of policies and in the planning and control of the operation of the undertaking. Managerial accountants therefore are seen as the value-creators amongst the accountants.They are much more interested in forward looking and taking decisions that willing affect the future of the organization, than in the historical recording and contour aspects of the profession. Managerial accounting knowledge and run into stop therefore be obtained from varied fields and functions within an organization, such as information management, treasury, energy auditing, marketing, valuation, price, logistics, etc. (Managerial Accounting,2011, para1-2) Importance of Managerial accounting for firms in generalManagerial accountants record financial information for their companies that is used by the organizations management team to aid in the decision-making growth. Managerial accountants develop budgets, perform asset and follow management, and create all-important(a) reports used by the management team. Managers depend greatly on the information provided by managerial accountants to develop effective business strategies. Small business owners make near of the decisions within their attach to.The information presented by managerial accountants affects the owners ability to make sound business decisions. The two primary functions of managerial accounting in a firm are planning and controlling. twain of these avail managers accomplish decision making. Managerial accountants have a dual reporting relationship. As a strategic partner and provider of decision based financial and operational information, managerial accountants are trusty for managing the business team and at the same time having to report relationships and responsibilities to the corporations finance organization.The activities managerial accountants provide spaciotemporal of foretelling and planning, performing variance analysis, reviewing and monitoring be inherent in the business are ones tha t have dual accountability to twain finance and the business team. Examples of tasks where accountability may be more important to the business management team vs. the corporate finance department are the development of new product cost,operations research, business driver metrics, sales management score carding, and client profitability analysis.Conversely, the preparation of certain financial reports, reconciliations of the financial data to source systems, risk and regulatory reporting will be more useful to the corporate finance team as they are charged with aggregating certain financial information from all segments of the corporation. In corporations that derive much of their profits from the information economy, such as banks, publishing houses, telecommunications companies and falsifying contractors, IT costs are a signifi dismisst source of uncontrollable spending, which in size is often the superlative corporate cost after total compensation costs and property related costs.A function of management accounting in such organizations is to work closely with the IT department to provideIT cost transparency. Managerial accountants support drive the success of the business while strict financial accounting is more of a compliance and historical endeavor. The goal of managerial accounting in a firm is to provide information for intrinsic decision making, primarily for planning and control purposes. The types of decisions made by managers rely substantially on accounting information.Because financial accounting information does not provide enough detail for essential decisions, it must be baffled into more detail of the individual products or operate provided by a company. Not only do managers need to know the cost of a product or service, they need the costs broken into smaller pieces so they are able to perform what-if analyses and forecasts for the future. Some types of decisions that managers often make include pricing products, dropping a prod uct or product line, buying new equipment to replace old, evaluating the implementation of managers or divisions of a company, or making rather than buying a part or product.What is Cost Accounting? Cost accountingis a process of collecting, analyzing, summarizing and evaluating various alternative courses of action (Wikipedia, March 23, 2013, Revised bar Version). It helps to find out the detailed information to the manager to control operation based on cost efficiency and capability. Managers made decisions for their own firm. So they need to manage the cost regarding productivity and strategic decision making. Cost accounting helps managers to control and manage resources.Strategic decisions based on cost reduction and rising costs are based on cost accounting. Basically the information is designed for managers as they take all the decisions for the organization. Important strategic decision making are made depending on the costs that the company advise manage to pay for. Thus cost accounting is an important tool for the managers for productivity management and strategic decision making. Importance of data mining entropy mining is primarily used today by companies with a strong consumer focus.The application of data mining is ever-increasing in todays business as in enables business to pull out hidden information from huge amount of data for better understanding of the consumers (Chopoorian et al. , 2001). The information is analyzed based on different perspective and summarize into useful data that can be used to increase revenue or cut costs. Although data mining is a relatively new term, but large companies are using it to find co-relation among huge amount of data in large database. The importances of data mining for modern business are tending(p) below Data mining is used in restoration of hidden data which helps to extract the priceless information and construct practical analysis for decision making. * Data mining gives financial institutions information about loan and credit reporting (Zentut, n. d. ). * It also helps banks detect fraudulent credit card transactions to comfort credit cards owner (Zentut, n. d. ). * It is being used ever more for understanding and forecasting consumer buying actions, buying tendency, customer profile and industry analysis (Articlebase, July 18, 2009). Data mining can be used as decision making tools in market research, industry research and competitor analysis which made it more beneficiary for the business industry. * It can manipulate large database swiftly and effectively accomplishes stainless data analysis process. * Data mining helps government agency by excavating and scrutinizing records of financial transaction to cast molds that can identify money laundering or criminal activities (Wordpress, December 5, 2006). * It can be used in every sector like science, business and others and it is cost effective.Limitation Data mining has uncountable benefits and importance in todays modern business but it has some(a) limitations. Most of them are based on technological advancement, which is considered as the foremost advantage of data mining. Additional limitations are discussed below * Security upkeep One of the major limitations of data mining is the security issue. Most of the businesses accumulate their customers social security number, paysheet etc. Hackers can easily go across their accounts and steal such sensitive data of the customers (Zentut, n. . ). Thus customers do not feel safe to share information through data mining. To avoid the unloved security concern, companies ought to take several crucial precautions so that the customers can trust them with no trouble. * Privacy concern The misuse of internet has threatened the privacy concern among its users. People are afraid to share any of their personal information as it can be collected and used in unethical ways. Customers do not prefer to buy goods online in apprehension of getting any informat ion revealed (IT Law WIKI, n. . ). As business has to collect many of the information, they must take care about the privacy policy so that the information cannot easily disclose. * Inaccurate information Unethical businesses or people might use information that is given in data mining for some other purposes or can inequity a micturatest some other people. Moreover the information or the assessment published in data mining is not absolutely accurate if the data has been entered wrong. Thus people cannot reliance completely on data mining. practical benefitsData mining is useful for modern business today as particular user will be looking for a pattern not for complete data in the database, it is better to sympathise wanted data than unwanted data. There are some other benefits. They are * Data mining technique is required pattern will be drawn from database with in short time * Data mining software is easy to use and does not require complicated statistical acquaintance and data preprocessing (Chen and Sakaguchi, 2000) * Data mining tools are programmed in such ways, it automatically present data analysis with opthalmic charts and table to assist understandingImportance of Accounting Data in productivity Measurement match to Kaydos (1991), Productivity and afterwards surgical operation measurement has become more important and has been regarded as a prerequisite for continuous procession (as cited in Phusavat & Photaranon, 2006). Accounting data is important for measuring productivity to provide a systematic and comprehensive explanation of changes in profitability. Productivity measurement is one of the criterions for performance analysis of a firm.According to Sink (1985), Productivity is simply the relationship between the outputs (goods and services) generated from a system and the inputs provided to create those outputs (as cited in Phusavat & Photaranon, 2006). It is very important that accounting data collected should be correct and reliable ot herwise productivity measurement would be faulty which will lead to incorrect forecast of cost and profitability data. Both technical and managerial aspects should be recognized in revision to ensure successful and swanable productivity measurement.For this purpose, strong database management is essential in order to ensure incidentally provision of accounting data for productivity measurement. It is essential to timely collect production-related data and report performance information by the database management to ensure better performance-analysis. According to Harper (1984), It is vital for an organization to become continuously more productive in order to sustain its growth (as cited in Phusavat & Photaranon, 2006). The productivity measurement based on accounting data divides production inputs into basketball team categories such as capital, labour, energy, materials, and services.Productivity also includes unit cost, price, factor proportion, cost proportion, product mix, and input allocation (Phusavat & Photaranon, 2006). Accounting data consisting of integration between productivity, financial performance (i. e. profitability) at the operational level, and features such as luck sack/loss is used for productivity and performance measurement. Management report on prospect gain/loss is useful for future monitoring and evaluation. Accounting data such as concepts of the opportunity gain/loss and the dynamic/static ratios in both single and partial formats are essential for performance measurement.Accounting information such as value-added labor productivity and ROA are also included in measurement technique. More comprehensive analysis of entity by measurements requires more accounting data to be aggregated (Phusavat & Photaranon, 2006). Importance of Accounting in Strategic Decision making Accounting is essential in managing business performance and the accountants helps to improve decision making by offering strategic and practical advice, by mana ging risk, and by reinforcement key decisions at all stages of the decision making process for enhanced productivity and profitability measurements.An accountant can help significantly in the areas of budgeting, investigating, interpreting and communicating results for use by both internal and external decision makers. For example, at the problem recognition stage, they may be the first to detect an opportunity or approaching threat. At the ideas stage, they can help to provide creative solutions ( better strategic decision making, n. d. ). Profitability is consequence of adopting a market predilection and plays important role in decision making (as cited in Inglis & Clift, 2008). food market orientations is composed of three behavioral components, such as customer orientation, competitor orientation and inter functional coordination, and two decision criteria, long-term focus and profitability (Narver and Slater, 1990). Customer orientation component of a market orientation and pr ofitability acts as decision criterion (Inglis and Clift, 2008). There is an identified fatality for accounting information about the costs involved in providing a range of customer product-attributes which help businesses to choose most profitable market segment.According to Gray and Hooley (2002), within the market-orientation, customer value, customer product-attribute needs and accounting information are interrelated conceptually from a managerial and sparing perspective (Gray and Hooley, 2002). McNaughton et al. (2002) stated that accounting function develops a sense of those attributes of greatest value to customers and in this way they may provide bear on between customers, value and profitability (as cited in Inglis and Clift, 2008). According to Inglis and Clift (2008), creating value for customer through product attributes requires accounting information very much for decision making.Function cost analysis and interrelated techniques of value analysis are integral to p rint cost (TC) which seeks to reduce the life-cycle costs of products while ensuring all customer requirements are met (Shillito and De Marle, 1992 Kato, 1993). According to Inglis and Clift (2008), the accounting function may interact with customers in managing payment procedures and foothold for a richer understanding of how to say its business in the market place and assist in creating value for the customer (Inglis and Clift, 2008).Importance of using first rudiment Method to avoid the problems faced by firms providing financial services According to Hussain and Gunasekaran (2001), activity based costing (ABC) has become highly essential to overcome shortcomings faced by traditional accounting method, in terms of validity, accuracy, completeness, consistency, understanding and relevance. It helps management to make internal decisions and formulate plans to provide new services, improve existing services and measure performances in order to achieve overall competitive strategi es and advantages of organizations.The approach further provides a more factual basis for decisions by identifying truly profitable and truly unprofitable products, eliminating unnecessary costs, identifying and distinguishing between unfeigned value-add activities and non-value add activities, and pricing products so as to achieve acceptable margins. It is a powerful tool in achieving competitive advantages and in providing operational and discretionary project cost data (Hussain and Gunasekaran, 2001).Activity based costing in service costs in bank demonstrated by Hussain and Kock (1994) showed unit time is a more complex calculation involving work measurement processes (as cited in Hussain and Gunasekaran, 2001). Once information obtained the bank can point the profitability of various segments, retain highly profitable segments and transform unprofitable segments into profitable ones through actions on pricing, product features, operating improvements and technology introducti on (as cited in Hussain and Gunasekaran, 2001).West and West (1997) demonstrated the need of activity-based costing implementation in services . . . for financial survival without which managers cannot make effective decisions involving long-term captivated contract profitability (as cited in Hussain and Gunasekaran, 2001). Harr (1990) reports activity-based accounting approach for budgeting and financial performance reduces the costs without losing either the timeliness or the feature of its services.In spite of the advantages, however, ABC costing does not solve all the problems involved in decision making as management might overlook basic analysis needed for customer adaptation, flexibility and economies of background signal (Hussain and Gunasekaran, 2001). It is important to constantly focus upon customers total perceived service quality and to maintain relationships to profitable customers. ABCM can then be accepted as a real tool for management to make strategic decision, f ormulate plan and operate control (Hussain and Gunasekaran, 2001)Using Target costing to identify profitable segments and maintaining productivity In the journal Target Costing (1995) the authors have stated that product innovation is one of the keys to a companys survival and competitiveness (p. 1). Thus Management accounting and cost accounting play an important role as they help in the creation of new products which attracts customers while maintaining low costs and ensuring profitability. As the effects of globalisation becomes more apparent companies are forced to reconsider their accounting practices, more specifically there management accounting practices.This is where target costing comes in. Target costing has been defined in the intensity Managerial Accounting (2012) the process of determining the maximum allowable cost for a new product and then developing a prototype that can be profitably made for that maximum target cost figure (p. 763). In other words a desired profi t margin is deducted from the exchange price and a new target cost is determined for the new product. Implementing Target Costing The different departments of the firm run a cost analysis to develop a target cost for the new product.If the manufacturing cost for the new product is equal or below the target cost then the product can be introduced in the market. Finally the target cost is deducted from the selling price. Thus target costing not only helps find a profitable segment in the market but also makes sure that product is being produce in its most productive capacity. The target profit process has been summarised in Figure 1 (see appendix). The journal further states that the companies that benefit the most from Target costing (p. 6) are 1. Firms involved in assembly production style. 2.Firms involved in product diversification thus need target costing to determine a profitable market segment. 3. Firms whose product life cycle is relatively short (less than 3 years). 4. Firms wanting to reducing costs during the planning, design and development stages of a products life cycle. Managerial Accounting Changes Research shows that Managerial Accounting has under gone changes in the experience decade. According to the journal Managerial Accounting Change in southerly Africa (Waweru, Jan 2004) this is especially true for developing nations. The case study considers four retail firms in South Africa.This helped them to find out the exact changes in Management Accounting Practices and the reasoning behind such changes. The journal reports that the main reason for such transformations can mainly be attributed to three main reasons. They are 1. Increased Globalisation-This has made sure there is change magnitude competition between the countries of the world. Thus necessitating for changes to take place in the managerial accounting world. 2. Huge variations in Information Technology-Technological advancements in the last decade has revolutionized the way world does business.The introduction of supercomputers has made sure that decision making process is faster and also made information more freely available. 3. Recent economic recession-The recession which has gripped the world since 2007 has made businesses reassess their managerial practices. Thus the journal has found that in order to deal with such challenges the businesses have evolved and so has their accounting practice. In developed nations more and more firms are now involved in Target Costing, Activity Based Costing (ABC), Product Life-cycle costing and in the end Quality Costing.It should again be mentioned that these changes has only been noticed in developing nations and not so much in developed nations around the world. However the paper cautions regarding such changes by stating that no one accounting system is universally appropriate for all firms. But rather that it varies from company to company. Thus the factors a firm should consider are (Waweru, 2004) 1. Size and typ e of the firm 2. Foreign competition 3. Economic restrictions 4. Technological advancements 5. political and Social ConsiderationsHence we can conclude from this journal that Management practices evolves slowly in developing countries where it is greatly back up by government reforms/deregulations and globalisations and technological improvements. Conclusion Thus we can say that accounting data has a strong effect on productivity and strategic decision making for firms. Since the datas collected, both time series and cross sectional data, provides an insight into what has increased output for firms over the years and all the possible actions firms can make to engage in efficient production. Datas are also used to make important decision.Time series accounting data gives a good understanding of the profitable segments of the firms and the different sectors the firm can further expand into. Hence we can conclude by utter that accounting data are extremely vital for management accoun ting practices. Reference 1. So,S and Smith,M. (2003). Managerial Auditing Journal. The shock absorber of presentation format and individual differences on the communication of information for management decision making. 18 (1), p1-3. 2. Farag,M and Elias,R. (2012). general Accounting Firms mix of service revenue and average productivity. Evidence using revenue per person. 7 (8), p1-5. 3. Phusavat,K and Photaranon,W. (2006). Productivity/Performance measurement. Case application at the government pharmacuetical organisation. 106 (9), p1-16. 4. Waweru,N and Hoque,Z. (2004). Management Accounting Change in South Africa. Case studies from retail services. 17 (5), p1-30. 5. Inglis,R and Clift,R. (2008). Market Oriented accountinginformation for product level decision. Market oriented accounting. 23 (3), pg1-15. 6. Liu,s and Chen,J. (2009). Using data mining to segment healthcare markets from patients preference perspectives. Using data mining to segment markets. 22 (2), p1-18. . Hussa in,M and Gunasekaran,A. (2001). Activity-based cost management in financial services industry. Managing service quality. 11 (3), p1-11. 8. Gagne,M and Discenza,R. (1995). Target Costing. JOURNAL OF BUSINESS & INDUSTRIAL MARKETING. 10 (1), p1-7. 9. None. (2012). Management Accounting. Available http//en. wikipedia. org/wiki/Management_accounting. Last accessed 12th April 2013. 10. None. (2009). Improving strategic decision making. Available 10. http//businesscasestudies. co. uk/cima/improving-strategic-decision-making/introduction. htmlaxzz2QEPImiLQ . Last accessed 12th April 2013.